Monday, March 23, 2009

Artificial Stimulants

Stimulant - is something that produces a temporary change. Without the stimulant, the change that was induced lessens and becomes that which it was prior to the stimulant.

Stimulants are like drugs. They may make people feel good for a while by fooling you into thinking everything is fine and dandy. They can even hide the root cause allowing the problem to get worse.

Congress is now looking at a proposal to provide tax credit to people who scrap a car that is eight years or more. The idea is to remove inefficient cars from the road and stimulate the automotive industry. Is this a sound concept?

When a person buys a car, they are making a decision to do so based on what? If it were better gas mileage then why do people buy hummers and SUV's? Clearly better mileage is not the main reason so this basis is wrong.

Is it based on the smell of a new car? If this were the only case, then I think there would be a lot fewer new cars sold.

Is it based on maintenance costs getting out of hand? I think this is a good reason. My car has over 200,000 miles and is beginning to have maintenance headaches. Fuel pump went out. I now need to replace a leaking intake manifold gasket. What is next? I have new tires and life time brakes which are a plus. So how much am I willing to spend to fix a gasket vs. buy a new car? No brainer here. I fix the gasket and get another 150,000 to 200,000 miles for 5% of a new car price.

This brings me to my point. When new cars age, they start needing work. Repair shops hire people to do the repairs. Salvage yards sell used parts cheaply to do-it-yourself mechanics. Spare part dealers sell new parts as well. All these small companies make money when the age of a car increases. If we were to provide an artificial stimulus to scrap cars, these employers would hire fewer people.

It is not the purpose of government to artificially stimulate the economy. It is far better to have millions of people making their own decisions. Some people will make the wrong decision and will learn. However, the majority will do what is best for them by either fixing a used car or buying a new one. All you need to do is look at the recent bailout with no strings attached. What special insight do politicians have that you or I do not? None, you and I for the most part know the value of a dollar, do they?


At 11:19 AM, Blogger Bob G. said...

This comment has been removed by the author.

At 11:21 AM, Blogger Bob G. said...

No, Bill...but they sure as shooting know the value of "OUR" dollars...!

(that must be why I keep feeling someone ELSE'S hand on my "hip-national-bank" all the time)

Good post, Bill.


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